Reflections on White Collar Crime and Federal Criminal Law

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Month: March 2016

What is a grand jury? The Fifth Amendment to the Constitution requires that federal felonies be charged by grand jury indictment, unless the defendant waives that right. Most states also use grand juries for at least some criminal cases, although their practices vary.

Absent a constitutional amendment, therefore, the federal grand jury is here to stay. But does it still serve a useful purpose, or is it simply a historical relic?

The grand jury has a pedigree far longer than that of our own Constitution. Its roots extend back to 12th century England, and the requirement that potential charges be presented to a jury of the King’s subjects was part of the Magna Carta. The founders of our own country considered the grand jury a vital part of the common law justice system and enshrined it in the Bill of Rights.

The grand jury is designed to act as both a sword and a shield. As a sword, it is the required process through which the executive brings charges that ultimately could result in a citizen being deprived of his property, liberty, or even his life. As a shield, it guards against abuses of state power, preventing the executive from simply hauling citizens into court for political or other improper purposes without the approval of a representative panel of the community.

Some argue that the grand jury today is simply a powerful tool wielded by the prosecutor and no longer plays any meaningful role as a check on government power. In other words, the critics claim, the grand jury now operates only as sword, not shield. The most famous formulation of this critique came from former New York judge Sol Wachtler, who once said that a prosecutor so inclined could get a grand jury to “indict a ham sandwich.”

As someone who spent a lot of time presenting cases to grand juries, I think these criticisms are misplaced. This venerable common-law institution still has an important part to play in our criminal system.

What is a grand jury?

What Is a Grand Jury and How Does it Operate?

The federal grand jury is one of the most powerful institutions in the entire government. Grand juries have brought down titans of industry and the nation’s most powerful political figures. The grand jury has a right to hear every person’s evidence, and can force even the most reluctant witnesses and companies to reveal their most closely-held secrets. No one has the right to defy its demands; those who do risk federal prison.

But despite the grand jury’s tremendous power, the grand jury process itself remains shrouded in mystery. Everyone is familiar with trial juries from seeing them in movies or on television or from serving on jury duty themselves. But most people — including most lawyers — know relatively little about what a grand jury is or how it operates.

(Part of this mystery undoubtedly stems from grand jury secrecy, the requirement that grand jury proceedings take place shielded from public view and remain strictly confidential. I’ll have more to say about grand jury secrecy later in Part II of this post.)

Federal grand juries today consist of between 16 and 23 people who, like trial jurors, are drawn from the local community and selected to serve. Federal prosecutors present sworn witness testimony, documents, and other evidence concerning potential federal crimes to the grand jury. Unlike in a trial, the grand jurors participate in questioning the witnesses. They also decide which witnesses and documents to subpoena, although in practice these decisions typically are made by prosecutors acting on the grand jury’s behalf. Throughout the process the prosecutor also acts as the grand jury’s legal advisor, explaining the charges and answering legal questions from the jurors.

At the end of a grand jury investigation the prosecutor may ask the grand jury to return an indictment, a document drafted by the prosecutor and containing the criminal charges. The vote does not need to be unanimous; only 12 grand jurors (out of a minimum quorum of 16) are required to approve the indictment. The standard for voting to indict is only a finding of probable cause to support the charges, not the much more stringent proof beyond a reasonable doubt that would be required for a conviction at trial. If the grand jury votes to indict (called a “true bill”), the indictment becomes document #1 in the public court file. The criminal trial process, with which everyone is more familiar, proceeds from there.

Subpoena power is the key to the grand jury’s might. Grand jury subpoenas may compel the production of documents and other evidence from corporations and individuals who would never surrender those materials voluntarily. They also may compel sworn testimony, subject to penalty of perjury, from recalcitrant witnesses who might otherwise refuse to cooperate. Those who defy a grand jury subpoena without a valid legal excuse may be jailed for contempt.

Practically speaking, the function of the grand jury differs depending on the type of case involved. In a routine drug prosecution or other simple case, law enforcement officers will do much of the investigative work outside of the grand jury. Witnesses and victims may provide statements voluntarily and there may be little need to compel production of documents or other evidence from reluctant third parties. The entire grand jury presentation might consist of a single law enforcement officer summarizing the evidence for the grand jurors, with a vote on the proposed indictment immediately following. In such routine cases the grand jury still must vote to indict, but it does not play a significant investigative role.

By contrast, in a large white collar, organized crime, or other complex investigation the grand jury proceeding may stretch on for several years and is a much more important part of the process. Reluctant witnesses are compelled to testify and corporate wrongdoers are forced to surrender documents they would otherwise keep secret. The power of the grand jury is what in large part makes the investigation possible. In white collar cases in particular, the investigative power of the grand jury often is critical in order to allow prosecutors not only to unearth what happened but also to determine whether it was a crime at all.

The Grand Jury and Fairness

I’ve always thought it unfortunate that the word “jury” appears in the title of the grand jury. It really would be better if it were called something else entirely. For lawyers and non-lawyers alike, the word “jury” conjures up images of an entire panoply of rights and procedures we associate with a trial, such as the right to confront and cross examine witnesses against you, the right to present your own evidence, adherence to formal rules of evidence, and a neutral judge overseeing the proceedings. These features are absent from a grand jury proceeding.

This is not to say that the grand jury is a sort of Wild West, “anything goes” environment. Prosecutors are still bound by multiple constitutional, legal and ethical principles. Privileges, such as the Fifth Amendment privilege against self-incrimination, still apply. There are also Department of Justice rules that govern questions such as when prosecutors should provide exculpatory evidence to the grand jury or when they should avoid the use of certain kinds of evidence. But there is no question that a grand jury proceeding and a trial are very different animals.

To make the probable cause determination, the grand jury has always heard only the government’s side of the case. In this regard, it’s not unlike a judge relying upon the sworn affidavit of a government agent to find probable cause to issue an arrest warrant. The judge doesn’t call additional witnesses or bring in defense counsel to cross examine the agent; for purposes of establishing probable cause, the government’s sworn statement of the evidence is deemed sufficient. If there are legitimate challenges to the government’s version of events, they generally will be considered only at later court proceedings.

The one-sided nature of the grand jury proceeding is perhaps its most controversial characteristic. After all, from childhood we are taught that fairness demands hearing both sides of the story. Surely that should be true in the grand jury context as well.

But what is fair in any proceeding depends upon the nature of that proceeding. As the Supreme Court has consistently recognized, the grand jury is accusatory, not adjudicatory; its job is not to decide guilt or innocence. Resolving disputes about the evidence largely takes place at post-indictment proceedings and trial. The grand jury is not intended to be “trial number one,” with hearings and motions to challenge the government’s case, followed later by “trial number two” where we do it all over again. Its role is simply to make certain there is a reasonable basis to proceed.

In other words, the grand jury’s job is not to determine how the story ends, but simply to decide whether the story should begin to be told at all. In making that determination, it has always been deemed sufficient — and fair — for the grand jury to hear predominantly the government’s side of the case.

The Grand Jury as Shield

Those who argue that the grand jury is simply a rubber stamp for the prosecution frequently point out that the grand jury returns an indictment almost every time the prosecutor asks for one. This is true. Out of tens of thousands of federal cases presented in a year, only a handful are dropped because of the grand jury’s refusal to indict (a “no true bill”). This is proof, critics claim, that the grand jury no longer acts as any kind of meaningful check on government power.

But this criticism ignores the screening function performed by the very existence of the grand jury process itself. A fair percentage of grand jury investigations, particularly in white collar cases, end with prosecutors deciding not to seek an indictment. By going through the grand jury process, prosecutors learn about their cases and, in some instances, determine that no provable crime took place. When that happens, the investigation is simply closed down without asking the grand jury to vote. These cases are not reflected in statistics that show how often the grand jury agrees with the prosecutor’s request for an indictment.

Presenting a case to the grand jury requires the prosecutor to investigate, analyze, and organize the case into a thorough and coherent presentation. That discipline brings to light a lot of weaknesses and weeds out bad cases.

Accordingly, the cases where prosecutors end up asking the grand jury to indict are only those where the prosecutors have gone through the grand jury process and have concluded the evidence is likely to sustain a conviction beyond a reasonable doubt. That the grand jury almost always votes to indict those cases demonstrates not that the grand jury is playing no role but rather that the screening process of the grand jury is functioning as it should.

If the grand jury were merely a rubber stamp for prosecutors bringing unjustified charges, you would expect a lot more cases to fall apart once they got past the indictment stage and a judge and defense counsel got involved. But of the cases that are indicted, nearly all result in some kind of conviction; dismissals and acquittals are very rare. This suggests the grand jury is largely doing its job by ensuring the cases that make it through to indictment actually have merit. Turns out that ham sandwich was guilty after all.

The grand jury today still acts as a shield: not primarily by refusing to agree when the prosecutor asks for an indictment, but by forcing the prosecution to go through the discipline of the grand jury process itself. If a prosecutor could simply run off and file charges without going through the grand jury process, I’m convinced many more weak or unjustified cases would end up getting filed. And for prosecutors bent on misconduct, it would be far easier and faster to file frivolous charges for political or other improper purposes if those charges did not have to be vetted first by a panel of citizens.

For a good prosecutor, the grand jurors serve another useful purpose: they act as the community’s reality check on the prosecution. Grand jurors look at the evidence not as government agents (who may have fallen in love with their case), but as members of the same community that will ultimately provide the trial jury. The questions and reactions of grand jurors may help the prosecutor ensure that he or she has a balanced and realistic view of the evidence. This human and often relatively informal interaction with the grand jurors throughout the investigation helps ensure that prosecutors maintain the proper perspective on their cases – another valuable shield function.

Grand Jury and the Risk of Abuse

There’s no doubt the grand jury is an incredibly powerful institution, and I don’t want to downplay the risk of abuse. There’s a reason the U.S. Attorneys’ Manual specifies that the prosecutor in the grand jury is an officer of the court whose job “is to ensure that justice is done and that guilt shall not escape nor innocence suffer,” and that the prosecutor must be “scrupulously fair” in the grand jury. With great power comes great responsibility.

An unjustified indictment can ruin a person’s life. It will be cold comfort to the wrongfully indicted individual to hear, “well, all of your claims can be addressed at trial.” Trial may come only after the defendant’s reputation is dragged through the mud, she pays hundreds of thousands in legal fees, and she spends months or years with the threat of a conviction and prison looming over her. An indictment alone can do tremendous harm, regardless of the eventual outcome.

A prosecutor with bad motives can indeed manipulate the grand jury process. He can conceal substantial exculpatory evidence, mislead the grand jury, and indict innocent people – or even ham sandwiches.

But if such misconduct occurs, the problem lies with the prosecutor, not with the institution of the grand jury itself. If grand juries did not exist, a prosecutor bent on misconduct could still file unjustified charges, conceal evidence, and manipulate any alternative charging system. Indeed, as I’ve argued above, I believe a system without the grand jury would in some ways make such misconduct far easier.

Where there are concerns about misconduct, the answer lies in better screening and training of those selected to be prosecutors, and in prompt and meaningful sanctions for those who abuse their power. But it’s not the much-maligned grand jury that creates misconduct or allows it to take place.

Fortunately, most prosecutors do not have bad motives and cases of deliberate misconduct are rare. For good prosecutors who recognize the grand jury’s proper role and their own responsibilities, the grand jury continues to play a vital role as the voice of the community in criminal investigations, just as it has for more than eight centuries.

What are the limits of federal criminal jurisdiction – and what does that have to do with growing marijuana in your back yard?

There’s a lot of debate these days about the scope of federal criminal law and the issue of overcriminalization. Broadly written federal statutes and legal theories such as honest services fraud have the potential to turn a vast number of traditional state crimes into federal offenses, often with very hefty federal penalties.

Last week in Taylor v. United Statesthe U.S. Supreme Court considered a challenge to the federal government’s assertion of criminal jurisdiction in an armed robbery case. But despite the relatively weak jurisdictional link, the Court does not seem poised to use the case to cut back on the reach of federal criminal law.

David Taylor and the “Southwest Goonz”

In 2009 a large number of home invasion robberies took place in the Roanoke, Virginia area. Local and federal law enforcement concluded that the perpetrators were targeting the homes of drug dealers, hoping to steal large quantities of money and/or drugs from victims who might be unlikely to report the crime to the authorities. A gang known as the “Southwest Goonz” was ultimately linked to more than thirty of these robberies; David Taylor was indicted in federal court for taking part in two of them.

In both robberies, the evidence was that Taylor and the other perpetrators targeted the homes in question because they believed the inhabitants were selling drugs. In each case, however, no drugs or substantial amounts of money were found. After threatening the occupants at gunpoint, Taylor and the others ended up stealing relatively minor items such as some jewelry, cell phones, a small amount of cash, and a single marijuana cigarette.

Taylor was convicted of two counts of robbery under a federal statute known as the Hobbs Act, as well as one count of using a firearm during a crime of violence. He was sentenced to nearly thirty years in prison.

The Hobbs Act imposes criminal liability on anyone who obstructs, delays, or affects commerce, or attempts or conspires to do so, through robbery or extortion. There was no real dispute that the robberies took place and that Taylor participated. But his lawyers argued the government had failed to prove beyond a reasonable doubt that Taylor’s actions affected commerce as required by the statute, given that this was basically a small-time local robbery.

The Hobbs Act defines “commerce” as any commerce between the states, as well as “all other commerce over which the United States has jurisdiction.” Taylor wanted to present evidence at trial that the victims of these robberies only sold Virginia-grown marijuana. Robbery of a dealer acting only within Virginia and selling only Virginia marijuana, he argued, would not affect interstate commerce to a degree sufficient to give the federal government criminal jurisdiction.

The lower courts ruled against Taylor, holding that all the government had to establish for Hobbs Act jurisdiction was that the defendant had attempted to rob someone who was selling illegal drugs. The government was not required to prove the marijuana in question had actually moved in interstate commerce or that any actual effect on interstate commerce had occurred. The Supreme Court agreed to hear the case to address what the government has to prove concerning the effect on commerce in a Hobbs Act robbery prosecution.

The Limits of the Commerce Clause

As a government of enumerated and limited powers, the federal government must have a constitutional basis for every federal criminal statute. The default presumption is that crime is prosecuted by the states, and the overwhelming majority of criminal prosecutions in this country do take place at the state level. If the federal government wants to step in, it requires a constitutional “hook” to assert jurisdiction.

For many federal criminal statutes that hook is the Commerce Clause in Article I, Sec. 8 of the Constitution, which gives Congress the power to regulate commerce “among the several states.” Many federal crimes require the government to show an effect on interstate commerce as an element of the offense, in order to establish federal criminal jurisdiction. This requirement historically has been interpreted very broadly, requiring the prosecution to show only a minimal impact on commerce in any given case.

Over time Congress became accustomed to relying on the Commerce Clause to justify almost any piece of criminal legislation. But the Supreme Court dramatically curtailed those efforts in the landmark 1995 case of United States v. Lopez. In Lopez the Court struck down the federal Gun Free School Zones Act, which made it a crime to possess a gun in the vicinity of a school. The Court ruled that the Commerce Clause power did not allow Congress to regulate purely local gun possession with no apparent effect on interstate commerce. Five years later, in United States v. Morrison, the Court struck down the federal Violence Against Women act for essentially the same reason, holding that domestic violence was a local crime without an adequate link to interstate commerce.

But Lopez and Morrison turned largely on the Court’s conclusion that Congress was trying to use the Commerce Clause power to regulate local activities that were not commercial in nature. When it comes to activity that clearly is commercial, courts have routinely upheld the assertion of federal jurisdiction even when the effects on commerce in a particular case appear to be minimal.

For example, if a small restaurant that caters almost exclusively to local customers is robbed, courts will still find an effect on commerce because the restaurant purchases food and other goods that move in interstate commerce and as a result of the robbery will have fewer assets with which to make those purchases. Similarly, even if a particular action has a relatively trivial effect on commerce, jurisdiction will be upheld if the class of all such similar actions, taken in the aggregate, would affect interstate commerce to some degree.

Given the historically broad interpretation of the Commerce Clause, Taylor was always going to have an uphill battle. But it’s even worse for Taylor than it appears, for two reasons: 1) he was trying to rob a drug dealer, not just any merchant; and 2) the Hobbs Act applies to conspiracies to rob and attempted robberies, not just to actual robberies.

As noted above, the Hobbs Act applies when there is an effect on interstate commerce or on any other commerce over which the federal government has jurisdiction. And when it comes to drugs the Supreme Court has already ruled, in a case called Gonzales v. Raich, that the federal government has jurisdiction over all controlled substances, even locally grown marijuana that never crosses state lines. In Raich, users of medical marijuana argued that under Lopez and Morrison the federal government did not have the power to regulate their purely local growth and possession of marijuana. But the Court held that Congress has the authority to regulate even intrastate drug activity under the Controlled Substances Act, based on its potential to have an impact on the overall interstate market in illegal drugs.

In addition, because the Hobbs Act applies to attempts and conspiracies, it doesn’t really matter whether the perpetrators succeed in stealing illegal drugs. If the government shows that the robbery was carried out because the defendants planned or intended to steal illegal drugs, that will suffice – even if, as in Taylor’s case, the defendants were unsuccessful.

In short, in light of Raich, if you attempt to rob a drug dealer the “effect on commerce” requirement is almost automatically satisfied: Congress has jurisdiction over the commerce in illegal drugs, and robbing a drug dealer will always have some effect on that commerce. This is essentially what the lower courts held in Taylor’s case. And that effectively transforms the Hobbs Act into a law that automatically makes it a federal offense to rob a drug dealer – even one that is operating completely within a single state.

Taylor’s Argument and the Government’s Burden of Proof

Taylor’s primary argument is that, under the government’s theory, an effect on commerce is automatically established. But proving an effect on commerce is an element of the Hobbs Act offense. The government, he argues, should never be relieved of its obligation to prove each element beyond a reasonable doubt. Taylor urged that the government should be required to show some actual effect on commerce from the robbery in a given case.

At oral argument some members of the Court did seem troubled by the notion that the commerce requirement is automatically satisfied any time the intended robbery victim is a drug dealer, no matter the individual circumstances. They pressed the government attorney on whether there was any evidence a defendant could offer to rebut this element of the crime.

The government’s response boiled down to this: although it did not have to establish an actual effect on commerce resulting from robbing a drug dealer, it still did have to prove beyond a reasonable doubt that robbing a drug dealer is what the defendant intended to do. In other words, the government would have to prove first that there was a robbery, and then, in order to rely on the jurisdiction holding in Raich, it would have to prove that the intended victim was in fact a drug dealer. About the only evidence a defendant could introduce to rebut this element would be evidence that, even though a robbery took place, the defendant never intended to rob a drug dealer and the victim was not in fact selling drugs.

It’s not immediately clear why the Court took the Taylor case. The Justices may be looking for a way to trim back the assertion of federal jurisdiction under the Hobbs Act – but given the Raich holding, Taylor’s case does not seem like a likely vehicle. For example, if Taylor had robbed someone who was growing carrots in his back yard and selling them only to his neighbors, the Court may have probed what the government should have to prove concerning the effect on interstate commerce (since, unlike the market for illegal drugs, Congress does not necessarily have jurisdiction over an intrastate market for carrots). Perhaps if a case involved only the robbery of a single carrot, the Court would have occasion to limn the limits of Hobbs Act jurisdiction.

More difficult questions also would have been raised if the robbery had been of someone who grew marijuana in his back yard but only raised it for personal use, not for selling to others. Usually the robbery of an individual is not considered to have an effect on interstate commerce. Would the mere fact that the robbery involved marijuana be enough to confer Hobbs Act jurisdiction, even if no trade in illegal drugs was involved?

But although Taylor may not prevail on his jurisdictional arguments, the facts of his case are relevant for those concerned about the increased federalization of criminal law. Justice Ginsburg observed these were relatively routine robberies that easily could have been prosecuted by the state. The government responded that Taylor’s case was only one small part of a much larger federal investigation and prosecution. Still, Taylor’s nearly thirty-year federal sentence is pretty stiff.

When former Virginia Governor Bob McDonnell faced two years in prison for public corruption, a dozen different legal and political groups filed amicus briefs on his behalf in the Supreme Court arguing that his prosecution was an overreach by the federal government. But Taylor, facing a nearly thirty year sentence, stood alone before the Court; not a single amicus intervened to argue on his behalf against the remarkable breadth of the Hobbs Act.

Given Raich and the federal interest in the illegal drug trade, the Court does not seem likely to use the Taylor case to rein in the Hobbs Act. We will have to await future cases to see if the Court is inclined to impose some new Commerce Clause limitations on federal criminal jurisdiction.